Benefit/Cost Analysis

1. Benefit/Cost Analysis “Things don’t have costs; choices do.

2. Benefit/Cost analysis involves the search for all alternatives.

3. The Five Steps • Identify the resources and state the goal • List alternative uses of the resources to achieve the goal • Identify the advantages and disadvantages of each alternative • Identify the choice and the opportunity cost of the choice • Review the decision, was your choice right for you?

4. Vocabulary • Decision making – the process of identifying a choice • Goal – something that a person wants to have or do

5. THE APRON

6. Bella’s Decision

7. Edward Advantages Disadvantages Danger to Bella Nerdy Abandons Bella Glows in sunlight Cold No tan Have to abandon father • Great car • Long life (death) • Good family • Handsome • Rich • Lots of education • Get to travel

8. Jacob Advantages Disadvantages Like a little brother Potential danger Abandons Bella Moody Bella has to take care of him Smells bad when he’s wet • Will protect Bella • Bella’s father approves • Hunk • Warm • Nice tan • Into motorcycles • Get to stay home

9. Benefit/Cost – another example • Sonja’s goal is to use her human capital to have the best time possible at the senior prom. With whom should she go? • Alternatives – Harry Potter or Spiderman • Advantages and disadvantages of each. • She chooses Spidey, the opportunity cost is Harry.

10. Harry Potter Advantages Disadvantages

11. Spider Man Advantages Disadvantages

12. Keep in mind • The choice is the alternative selected. • The opportunity cost is the alternative not selected, the opportunity given up. • Every choice has a cost; there is no such choice as a free choice. • Disadvantages are not costs. There is only one cost to each choice.

13. Your Decisions • List four decisions that you have made in the last month and the opportunity cost of the choice. e.g. To achieve the goal of ________, I used my _________ to _______ instead of _________. • To achieve my goal of maximizing my wealth on Sunday , I used 3 hours of my human capital to watch football instead of studying for my econ class.

14. Your students’ decisions • List three decisions that your students at the grade you hope to teach might make, placing them in the same format as the examples above.

15. Historical Decisions • List three decisions that historical characters made and put them in the same format as the two above. •  e.g. To achieve the goal of winning the war, George Washington used his troops to withdraw from New York rather than stay to fight the British.

16. Historical Decisions • Colonist in 1776 – rebel or tory? • Caesar in 30 BC – enter Rome with or without army • Truman 1945 – bomb or troops? • Kennedy 1960 – Cuba bomb or blockade • 49er gold seeker – land or sea? • George Bush – Iraq or Bin Laden

17. Historical markets • Why did Marc Antony want Egypt? • Why did the English want to come into the U.S. Civil war on the side of the South? • Why did Columbus sail the ocean blue in 1492? • Why did the people of New England want to revolt against the English?

18. Alternative uses of your money (embedded human capital) • Eat at home or eat out? • What video? • School books or entertainment? • Brand name or generic shoes?

19. The importance of alternatives • Power – an impressive list of alternatives in terms of quantity and quality • Poverty – few good alternatives • Your job in school – build your human capital so that you will have power